ABSTRACT: We examine the effect of US branch banking deregulations on the entry
size of new firms using micro-data from the US Census Bureau. We find
that the average entry size for startups did not change following the
deregulations. However, this result masks the differences in entry size
among startups that failed within three years of entry and those that
survived for four years or more. Long-term entrants started at a 2%
larger size relative to their size in their fourth year, while churning
entrants were no larger. Our results suggest that the banking
deregulations had two distinct effects on the product market. On the
one hand, they allowed entrants to compete more effectively against
incumbents by reducing financing constraints and facilitating their
entry at larger firm sizes. On the other hand, the process of lowering
financing constraints democratized entry and created a lot more
churning among entrants, particularly at! the low end of the size
distribution. Our results highlight that this large-scale entry at the
extensive margin can obscure the more subtle intensive margin effects
of changes in financing constraints.